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How Safe is Our Money in the Cashless Economy?

After demonetization the government’s is driving the people to go cashless for mopping up taxes on every rupee being transacted in the country. With this move, millions of Indians are worried, how safe is their money in the cashless economy, because Internet banking frauds has been increasing many folds and currently constitutes 59% of all the cyber-crimes committed in India.

The common man is worried about such an increasing rate of online fraud on which they have no control or protection from the government. Their worries exacerbates from the fact even Home Ministry’s statistics has admitted that there has been 40% increase in online fraud cases in the country.

If one may recall just few weeks before the government announced its demonetization policy on Nov 8, 2016, India reported its biggest internet banking security breach. Over 3 million debit cards and their pin numbers, including those powered by MasterCard and Visa, were stolen on October 20, 2016.

The Ministry of Finance reported that Rs 2.5 lakh was stolen from the various accounts across the country. Multiple public and private banks were affected by this cyber-attack and every individual using these cards became vulnerable across India of their money being stolen.

A PricewaterhouseCoopers (PwC) and ASSOCHAM report says that 65% of the fraud cases reported by Indian banks were related to debit and credit cards. The debit and credit card cloning made up for 42% of the total internet related banking frauds. The modus oprendi is debit card is skimmed by installation of cameras and skimming machines at ATMs to steal data which is later used for online banking theft.

The PwC report stated that the good news is number of Indians shopping through their mobiles had increased by 800 percent. The bad news is Indians at the same time have become vulnerable to various types of frauds while using mobile banking and mobile wallets. The mobile wallets are prone to misuse and could lead to unauthorized deductions from the wallet of a customer even without their knowledge.

The report further says, the irony is mobile payments in India are still not governed by any legal provisions. These payments are mostly contractual obligations. With lax cyber security, mobile banking is a highly risky operation in India.

This is more so because many banks appoint a third party vendor to develop and manage mobile banking applications. This gives the vendor access to critical bank account information of the customer which could be misused by some unscrupulous persons.

Moreover, the threats of sim-card swaps and malware affecting mobile phones, virus attacks, identity thefts and phishing are other grim realities of online banking fraud. As a result of all these worries, India's largest professional association for promotion of digital mode of payment, the “Communication Multimedia Association India” (CMAI) has issued a statement that the country needs an appropriate legal framework comprising separate digital payment laws and digital payment courts across the country to deal with any such kind of problems.

The telecom industry body CMAI has demanded legal framework for data storage and data protection and immediate recovery of the money in case of online frauds. Further, in order to check growing cases of small amounts lost, CMAI has demanded establishment of digital courts throughout the country for its prompt recovery and adequate punishment to the culprits.

In the same context, the CMAI has said that the digital payments frauds should not be lumped with the cybercrimes, as the scope of the two are different and should be treated separately.

As the digital payments have gone up to 300 percent since demonetization, it has created the need for additional 20 lakh more PoS machines. In this context the CMAI has also urged the government to promote domestic manufacturing of Point of Sale (PoS) machines and its software development under the "Make in India" initiative.

This is because majority of PoS machines are currently imported primarily from the US, Europe or China and the security of the data stored remains a big challenge.

What further compounds the problem is the limited immunity that bank customers have in case if they become victims of online fraud. The RBI issued a circular of the new liability norms for victims of online financial fraud which absolve itself from any responsibility.

The RBI circular says if a customer does not report the un-authorized transaction to the bank within seven days, he or she has to bear the entire loss of the money lost. Now this is harsh because many a times customers do not know if any such thing has happened as they may be unable to identify an online fraud.

Even if the customers are able to report the online fraud to the bank within seven days, according to RBI circular, he or she is entitled to only Rs 5000 as compensation irrespective of the loss. This is again something harsh because they have no protection for their own money.

The telecom industry body CMAI has called for an appropriate and robust mechanism to report losses and recovery of money lost through theft or frauds in digital payments. It has requested for an institutionalized policy for redressal of complaints of citizens with regard to digital payments.

With RBI issuing the data that 85% of the all reported transactions at banks in 2015-16 were through the internet in volume terms, it is high time that the government frames rules and regulation to secure the people’s money deposited in the banks.

Currently, people have faith in the banking and delegates them the responsibility to keep their money safe. So it’s the bank that has to give an assurance to the customers that that money transacted through online mode is safe and secure and in case of an online fraud, the money lost will be compensated by the bank.

In the final analysis, one can say that the dream of cashless economy can only be realized, only if the government takes adequate security measures of any online fraud. It has to give a guarantee that in case of breach of system the entire money lost will be compensated to the victims. Such assurance alone can give security to the customers’ and pave the way for cashless economy in the country.

- By Syed Ali Mujtaba